Transforming the Global Enterprise -- A C-Level Perspective on Contract Management’s Impact to Bottom-Line Performance Across the Organization

Emptoris, Inc.www.emptoris.com SCWP-3/08

A n E m p to r i s W h i t E pA p E r

Transforming the Global Enterprise A C-Level Perspective on Contract Management’s Impact

to Bottom-Line Performance Across the Organization

- � - © �001 - �009 Emptoris, Inc.

Executive Overview: Contract Management and Its Impact

on the Global Organization ..................................................................................................3

The CFOs Perspective ............................................................................................................5

How Contract Management Impacts Fiscal

Management and Revenue Recognition .............................................................................5

The Sales Perspective ...........................................................................................................9

How Contract Management Can Support and Speed the Sales Process .............................9

The Chief Counsel’s Perspective .........................................................................................11

How Contract Management Software Impacts Contract

Visibility, Analysis and Compliance ...................................................................................11

The Procurement Perspective ............................................................................................14

How Contract Management Furthers Global Sourcing

and Procurement Excellence .............................................................................................14

The Path to Enterprise Contract Management Excellence ..............................................16

The Impact of Best-in-Class Contract Management

Global �000 Usage of Contract Management Technology ................................................16

Nortel Networks Corporation – Global Contract

Management Implementation ...........................................................................................20

Conclusion ...........................................................................................................................24

About Emptoris ...................................................................................................................24

Further Resources and Recommended Reports ...............................................................25

the CFos perspectivethe CFos perspectivethe sales perspectivethe sales perspectivethe Chief Counsel’s perspectivethe Chief Counsel’s perspectivethe procurement perspective:the procurement perspective:the path to Enterprise Contract management Excellencethe path to Enterprise Contract management Excellencetable of Contents

- � - - � - © �001 - �009 Emptoris, Inc.

Contract management software is one of the most important advances in business technology since

the introduction and popularization of enterprise resource planning systems in the early 1990s.

Contracts are the foundation of all good business relationships, from key supplier agreements, to

strategic outsourcing arrangements; from revenue-generating sales agreements and the protection

of intellectual property through licensing agreements; down to lease agreements and consultant and

employee agreements. Contracts and contract management play a key role

in helping companies define business-to-business relationships, operational

expectations and compliance standards – and many expect contract

management applications will become the central tool used for management

of internal business relationships and compliance at global companies.

Enterprise contract management (ECM) solutions – or contract lifecycle

management (CLM) solutions as they are sometimes called – automate and

optimize the contract management process from creation, negotiation and

execution through performance monitoring, analysis, and re-negotiation.

According to a study conducted by the Economist, just one in ten corporate

executives today have ready access to the information needed to make

important business assessments and decisions. More than 50% of corporate executives report regular

concerns about making business errors or poor decisions specifically because of a lack of real-time,

relevant information. Eight out of ten corporate executives rank improved information and data as

the most critical factor in improving business decisions and performance. Seven out of ten (67%) of

Global �000 companies surveyed reported challenges or “struggles” in managing business risks in

their contracting process according to a survey by Inside Counsel and Emptoris, in a survey conducted

in September �008. The majority of CEOs and CFOs recognize that one of their biggest business

challenges is the lack of visibility and ability to quickly analyze business data and information.

This perhaps explains the growing investment in contract management technologies. According to

Forrester Research, investments in contract management software by Global �000 companies are

expanding at a rate in excess of �5% annually and companies inquiring about these technologies more

than any other business or spend management solution. According to the Gartner Group information

technology research firm, early adopters “have successfully proven the value of enterprise contract

management applications; as a result, demand for these tools have increased.” The firm notes that

growth in contract management adoption is coming in particular from companies expanding the

scope of their solutions within their organizations.

Executive overview: Contract management and its impact on the Global organizationExecutive overview: Contract management and its impact on the Global organization

“Contract Lifecycle Management could turn out to be one of the most important new business applications of the first decade of the 21st century.”

Andrew Bartels, Analyst, Forrester Research

- � - © �001 - �009 Emptoris, Inc.

Few processes and applications can span and impact the entire global organization like contracts and

contract management. From a CEO’s perspective, contracts and the contract management process

have significant impact on revenue generation and recognition, spend and procurement management

and savings; and risk mitigation and compliance enforcement. From the CFOs perspective contract

management processes and technologies impact the sales and revenue processes; capturing

and maximizing revenue; ensuring proper revenue recognition and compliance; and controlling

or reducing spend or costs. From the Chief Counsel or General Counsel

perspective, contract management software is instrumental to manage

the more than �0,000 active contracts of a typical Global �000 company,

including managing, monitoring and analyzing the creation and execution

of contracts – and enforcing compliance and managing legal risks. From the

Chief Procurement Officer’s (CPOs) perspective, contract management plays a

critical role in negotiating and realizing savings from suppliers; in managing

overall supplier performance and reducing supply chain risks and disruptions.

For the entire organization, the globally networked economy has brought

with it increased complexity, a growing workload, and heightened pressure

to reduce costs, drive compliance, reduce cycle times and improve decision-

making. Contracts and enterprise contract management solutions can be

the focal point of reducing and managing these pressures, providing C-

level executives with increased visibility, improved control and enhanced

capabilities to enforce compliance.

Dozens of research and case studies reinforce these points and clearly

demonstrate the impact contract management can have on the organization.

One of the studies highlighted in this whitepaper, produced by the Aberdeen Group, provides detailed

data on how best in class organizations in terms of contract management “clearly outperform”

others with “a higher percentage of spend that is on-contract and a significantly higher percent

of transactions that are compliant with contracts. Improving the amount of transactions that are

compliant to contracts allows enterprises to capture a higher percentage of savings, savings that may

have been negotiated in a sourcing event. Also, Best in Class companies achieved higher performance

on the sell-side, having a higher percentage of sales orders and revenue recognition that is compliant

with a particular contract. Given the strict regulations around this area, it is clearly a key for any Finance

executive.”

“Contract lifecycle management helps companies improve the performance of their balance-sheet assets and liabilities as well as their intangible assets and liabilities such as brands, key customer and supplier relationships, and intellectual property, which we at Forrester believe is the next frontier of software for optimizing business results.”

Forrester Research

- � - - 5 - © �001 - �009 Emptoris, Inc.

How Contract Management Impacts Fiscal Management and Revenue Recognition

CFOs are faced with increasing pressures from compliance to cost controls to revenue recognition.

Global �000 companies are increasingly turning to ECM solutions for better contract management and fiscal management.

ECM can mitigate financial risks, lead to more profitable contracts and speed revenue recognition.

A fast-growing trend in fiscal management is the application of enterprise contract management

(ECM) technologies. These technologies have long been used to impact the bottom-line, but are

most commonly applied by Procurement organizations to help manage and reduce costs, or

by Legal organizations to efficiently and effectively manage contracts, processes and corporate

compliance. However, the increased regulatory requirements of Sarbanes-Oxley and accelerated

drive to control costs and better manage cash flow and revenue in the midst of economic uncertainty

has accelerated the usage of contract management technologies by Finance organizations.

Contract management plays a critical role in fiscal management: controlling spending, mitigating

financial risks, managing compliance and speeding revenue recognition.

1. Driving Compliance and Reducing Risks: From Sarbanes-Oxley, to SEC and FASB rules, the fiscal

management of a Global �000 company carries with it significant compliance requirements, over

and above the demands of running a fiscally tight ship. Many companies are hand-cuffed in their

compliance efforts by a lack of visibility into Legal and Financial risks, and the inefficiency and

limitations of their contract preparation and approvals processes.

With the right technologies, companies can ensure and enforce compliance by (1) building in

proper contract review and approval procedures and (�) by providing greater and more timely

visibility into financial and legal exposures. In the study, “Contract Lifecycle Management and the

CFO,” published by the independent analyst firm, the Aberdeen Group, it was found that nearly

65% of enterprises using contract lifecycle management reported immediate benefits in their

visibility into and identification of financial and legal risks.

With a contract management solution, companies have a library of contract templates with

approved language, alternative and “fall back” clauses, to quickly produce stronger contracts in

compliance with governmental regulations and internal rules and controls. Contract creation

wizards can enable self-service contract creation by front-line personnel while ensuring

compliance and providing top-level management final approval over any notable modifications

or anomalies.

the CFos perspectivethe CFos perspective

- 6 - © �001 - �009 Emptoris, Inc.

A central repository, rules-based notifications and alerts help ensure

companies have broad and immediate visibility into the contracts at

the heart of their revenue generation – and further allow for analysis of

risks. Complete transparency across the full contract lifecycle enables

cross-functional cooperation and accountability, and a clear audit trail

makes any deviations from standard readily apparent.

2. Ensuring Proper Revenue Recognition: Contracts also play a central

role in revenue management, including (1) forecasting revenues;

(�) ensuring proper revenue recognition; (�) certifying that financial

statements are accurate and complete; and (�) generally managing

cash flow and the solvency of a business. Best-in-class contract

management software can help ensure proper accounting of revenues

(and spend) in terms of accounting rules and guidelines. In a worse-

case scenario, poorly written contracts can lead to revenue recognition

issues and necessitate revenue restatements.

With the complexity of today’s sales agreements and revenue

recognition rules, particularly in industries such as such as high-tech

and software with multi-element contracts, contract management

solutions can help ensure the appropriate accounting of revenue, including when and

how revenue is recognized, and regardless products, pricing or schedules. Using contract

management automation alone, or through integration with billing or accounting software,

companies gain direct visibility into and automatic alerts on schedules and milestones in

contracts that impact revenue.

ECM technologies also help identify which transactions are to be counted as revenue and at

what given time; tag specific goods and services procured to the proper accounting code or

method; and assign contracts and transactions meeting certain parameters to specific accounts

or to specific personnel for review.

By automating processes and improving visibility into contracts, companies create a strong

foundation of internal controls over revenue practices that leads to greater integrity and

accuracy of revenue data. Having a library of standard contract terms related to revenue

recognition business rules allows companies to ensure best practices in revenue recognition are

consistently applied. And an automated approval process allows for more efficient management

and ensures review of non-standard contract terms, specifically those that would impact revenue

recognition. Finally, contract management solutions offer a reliable, consistent and efficient

manner to review and report on revenue aspects of contracts, allowing for more rapid insight

into risks and faster resolution of potential problems.

3. Capturing and Maximizing Revenue: Another research study by Aberdeen Group among Global

�000 companies found that poor contract management in the sales-to-revenue cycle results in

revenue leakage, on average, between 5% and 9%. Thus, even under a conservative scenario, for a

company with just over $1 billion dollars in contracted sales, revenue leakage could run between

Core Challenges of Contract Management at the Global Organization

The lack of visibility and control into contracts is at the heart of a number of significant issues within Global �000 companies, including:

Lack of visibility into Legal and Financial risks

Un-auditable paper trails and lack of compliance

Deficient or no proper approvals of key documents or decisions

Difficulty managing variations in language, law and financial values globally

Lack of spending insight and controls

Lost profits or revenue opportunities

- 6 - - 7 - © �001 - �009 Emptoris, Inc.

$50 million to $90 million. Capturing just half of that can add tens of

millions of dollars back into a company’s revenue stream. Obviously, in

today’s economic environment, revenue is especially critical. Capturing

that leakage is highly achievable. In the Aberdeen report, best-in-

class companies in terms of contract management had leakage just

a fraction of the average company, typically around one and a half

percent.

Revenue leakage can occur from a range of problems, including

sub-optimum or missed contract renewals; improper invoicing, or

regulatory fines or penalties. Contract management solutions allow

companies to capitalize on each renewal opportunity by identifying

upcoming renewal candidates, notifying internal and external parties

through dynamic workflow rules, automatically generating renewal

contracts, and initiating processes in other enterprise systems.

The result is higher renewal rates, higher revenue through stricter

enforcement of pricing terms, and lower contract renewal and

administration costs.

A contract management solution also allows companies to monitor

customer (and supplier) performance against commitments and

conduct timely audits, performance checks, and reviews so that the

value of contracts is maximized. [On the buy-side, as discussed later

in this whitepaper, companies capture more savings opportunities by

ensuring that they obtain the discounts and rebates they’ve earned.]

Finally, contract management solution allows companies to structure

more profitable deals by leveraging information from all historical

contracts and from other enterprise solutions to give an edge in

the negotiation of contracts. This also improves contract quality by

enabling professionals across functional areas to collaboratively

develop contracts, and giving senior management clear dashboard

visibility into key contracts and key terms.

4. Speeding Sales and Revenue Recognition: An additional benefit of

the application of contract management technologies is speeding the

sales and revenue recognition processes.

The process of managing deals from initial sales proposal through

contract creation, negotiation, and acceptance, typically involves

numerous resources across an organization. In most organizations, Sales Operations, Field Sales,

Finance, Legal, and Consulting are involved in the sales process. Coordinating the process across

all resources, while ensuring that deals contain only accurate and beneficial terms can be time

consuming and challenging.

Core Value Proposition for Contract Management Software

Enterprise contract management (ECM) solutions can play a significant role in helping companies relieve these pressures and more effectively manage, as well as improve their visibility, control and compliance across the organization:

Greater Visibility

Enterprise contract management solutions help companies attain a complete picture of all obligations and commitments across the company through the following:

• Centralized contracts company-wide via controlled access to a global contract repository

• Ability to search for contracts across a variety of parameters

• Consolidated views of prevailing language and terms, even as contracts are amended

Better Management and Control

Enterprise contract management solutions help companies gain greater control over contracts and achieve improved corporate governance and cost control.

• Enforce corporate standards for language, terms, and pricing though business workflows and approvals

• Ensure that any variations of standard contract language are routed to the appropriate person or organization for approvals

Improved Compliance Enforcement

Finally, ECM solutions link strategic operations to tactical systems furthering compliance:

• Drive day-to-day operations based on commitments with suppliers, customers, and partners

• Improve efficiency of audits, and lower internal and external audit costs

Core Challenges of Contract Management at the Global Organization

The lack of visibility and control into contracts is at the heart of a number of significant issues within Global �000 companies, including:

Lack of visibility into Legal and Financial risks

Un-auditable paper trails and lack of compliance

Deficient or no proper approvals of key documents or decisions

Difficulty managing variations in language, law and financial values globally

Lack of spending insight and controls

Lost profits or revenue opportunities

- 8 - © �001 - �009 Emptoris, Inc.

According to one study, each day a contract is delayed in the sales cycle

at a Global �000 company results in an estimated reduction in $88,000 to

the bottom line of the company through both time-costs and lost revenue.

Situations vary by industry and contract, but a delay of a week could cost

the business close to a half-million dollars.

“Companies using contract management solutions to enforce systematic

and efficient procedures for creating, executing, and managing corporate

contracts have been able to cut process cycles in half, reduce contract

administration costs, improve contract compliance 50% to 55%, diminish

risk, and increase revenues and profits,” said Aberdeen Group.

Bottom-line impact, and speeding that bottom line impact, is what the

application of technology to contract management is really all about.

One medical technology company with whom Emptoris worked saw a

reduction in time spent creating, negotiating, and approving contracts by

roughly 60%. The Aberdeen report found similar successes, with best-in-

class companies applying ECM technologies taking just �0 days to go from

contract creation and negotiation to approvals, compared to more than �0

days on average for Global �000 companies in general.

A technology service company with whom Emptoris works shared that

they halved the time required to close contracts using enterprise contract

management technology, which they commented “enables us to accelerate

revenue each quarter. We could bring forward tens of millions next year,

and ever greater revenue numbers in future years.”

Whether it is speeding sales and revenue processes; capturing and maximizing revenue; or

ensuring proper revenue recognition and compliance to revenue recognition rules, enterprise

contract management technologies can play a significant role in driving both compliance and a

bottom-line impact.

“Getting better control over contract production and management is becoming an imperative in large enterprises. Our research shows that early adopters are getting real benefits in three key areas. First, they are seeing real bottom-line savings through better compliance with contract prices. Second, they are seeing improvements in productivity and quality in the procurement and sales administration teams. And third, the management teams feel much more in control of their business through controlled workflow and access rules on contract approval.”

– Andy Kyte, Vice President of Research, Gartner Group

- 8 - - 9 - © �001 - �009 Emptoris, Inc.

How Contract Management Can Support and Speed the Sales Process

By automating the sales contracting process, enabling both internal and external collaboration

and, creating a more structured approach to contracting, contract management solutions can help

companies accelerate the sales process, as well as negotiate and create stronger contracts. Because

sales contracts dictate virtually every aspect of a business relationship, including payment terms,

service levels, and pricing, they play a critical role not only in the sales process but across the broader

organization as well.

As any Sales Executive will attest, the process of managing deals from initial sales proposal through

contract creation, negotiation, and acceptance is complex and often involves input or approvals from

a host of departments, from Sales to Finance to Professional Services to Legal, among others. Some

typical challenges that Sales organizations can encounter during the process include (1) verifying

deals contain accurate and competitive product, pricing, and terms; (�) ensuring proper review and

approvals of sales agreements; and (�) coordinating the sales process across different departments

within the enterprise and externally.

A survey by Inside Counsel and Emptoris found that close to 80% of Global �000 companies see a

need for significantly improving their sales contracting processes with �9% seeking to better define

processes and �8% looking to begin fully automating the sales contracting process. According to

the survey, the case for improving and automating sales contracting processes is clear, with close

to half (�8%) of all Sales, Legal and Contracting professionals at Global �000 companies seeing an

opportunity for significantly reducing contract processing cycle times with contract management

software and close to one-third (�0%) seeing opportunity for mitigating sales contract risks.

“Sales staff negotiated contracts on a one-off basis and then forwarded them indiscriminately for

internal and external approval. Before long, multiple drafts with edits marked in page margins

were circulating. Our lawyers couldn’t even be sure that they were reviewing a current version.” By

lengthening cycle times and fostering uncertainty, these inefficient processes impeded the closing

of deals, increased costs, and reduced revenue.” – General Counsel for a Fortune 1000 technology

company.

Contract management can play a critical role in improving and speeding the sales process by:

1. Speeding the Sales Process: Delays in sales contracting often causes deals and revenue to slip.

There is “perpetual frustration” among Sales Executives with the perception that internal Legal and

Financial hurdles stand in the way of closing business. Effective sales contract management ensures

the legal strength and compliance of a contract – while empowering Sales professionals to close

deals quickly and easily. This is achieved not only through the efficiency that automation of the

process brings, but also via the collaboration that can take place in contracts automation. In the

current economic environment, the need to streamline and speed the sales contracting process is

evenmore imperative.

the sales perspectivethe sales perspective

- 10 - © �001 - �009 Emptoris, Inc.

2. Improving Deal Quality: Before the sales contracting process even begins, contract management

solutions have the capability to improve sales opportunity quality by enabling professionals across

functional areas to collaboratively develop a comprehensive knowledge base from which Requests

for Information (RFI) and Proposal (RFP) templates are maintained and developed. The solution can

house templates that contain appropriate product, pricing, and value information that can be quickly

assembled and provided to prospective customers. The solutions can even set up internal process for

RFP input, reviews and approvals.

3. Managing Renewals and Revenue Opportunities: As contracts near

the end of their term, companies have an opportunity to ensure that their

customers remain customers. Contract management software provides the

business insight companies need to plan for upcoming renewals, negotiate

new business terms, and take advantage of additional selling opportunities.

Companies utilizing contract management technologies (best-in-class)

achieve close to 60% annual contract renewal rate versus just ��% on

average for the one-third of Global �000 companies performing at the

bottom of the contract management spectrum.

4. Managing Customer Relationships: Dynamic business relationships

often result in countless contract amendments, which challenge

companies’ ability to manage their constantly changing obligations

effectively. Throughout the customer lifecycle, a contract management

solution consolidates multiple amendments to each contract to provide a

single view of contractual relationships so that companies can understand

and meet their obligations to their customers.

In addition, proper visibility into contract deliverables and the ability to manage commitments

made to customers are a key to ensuring contract terms are enforced and customer satisfaction is

maintained. Contract management applications can link daily operations to companies’ contracts,

and proactively notify professionals of upcoming commitments and related dates.

“Virtually all the references checked for this Gartner MarketScope indicated that they were pleased with their investment in contract management software …. the overall impact and ROI of these tools has been good.”

– Gartner MarketScope for Contract Management Research Report

- 10 - - 11 - © �001 - �009 Emptoris, Inc.

How Contract Management Software Impacts Contract Visibility, Analysis and Compliance

The average Fortune 1000 company maintains between �0,000 to �0,000 active contracts according

to the Institute for Supply management, and the number and complexity of these contracts is

expanding everyday. According to a study by Emptoris and Inside Counsel, these contracts are

managed using manual processes or with very limited technologies.

As contracts are the foundation of a business, such a “file and forget” approach results in limited

control over and visibility into contracts, and:

Deficient contract approvals processes

Unauditable contract paper trails

Poor contract and exposure analysis

Risk of non-compliance, increased legal and financial risk

Lost savings, profit and revenue opportunities

Contract management software allows companies to gain greater control and visibility over their

contracting processes and contracts, resulting in reduced risks, stronger agreements and more

effective contracting and compliance. Best-in-class contract management solutions typically span

every stage of the contract lifecycle, from proposal and contract creation, negotiation, obligations

management, and compliance enforcement, through contract amendment, renewal, and ongoing

analysis.

A survey by Emptoris and Inside Counsel found that achieving greater spend visibility with

a central, electronic contract repository was the primary reason companies were investing in

contract management technologies, followed by a desire to gain greater control over contracts for

compliance reasons. Thus, from the perspective of the Chief Counsel and Legal department within

an organization, a few of the core reasons for implementing contract management technologies are

as follows:

1. Providing in-depth, instant contract visibility: Contract management solutions enable a company

to attain a complete view into all its obligations and commitments, as well as commitments to the

company, across the global organization. At the heart of this visibility is a contract repository which

provides a complete, current view of all contracts, as well as supporting documentation, amendments

and sub-agreements. Best-in-class solutions allow for a single view of prevailing language and

terms, even as contracts are amended over time. Contract templates and authoring tools, exception

notifications and automation of approvals processes allow for the creation of stronger agreements

and ensure compliance of agreements to both internal policies and external rules and regulations.

Technologies typically allow for a library of approved terms and conditions, alerts and approval

requirements for agreements modified from standard, and visibility into contract process bottlenecks.

the Chief Counsel’s perspectivethe Chief Counsel’s perspective

- 1� - © �001 - �009 Emptoris, Inc.

With enterprise contract management, companies can instantly access information about

contracts and contract terms, as well as analyze contracts across specific categories, departments

or enterprise-wide to determine trends, analyze exposures and risks, or gain insight into

opportunities for savings or to increase revenue.

2. Minimizing risks and ensuring compliance: From Sarbanes-Oxley, SEC and FASB rules to internal

policies and controls, managing compliance at a global corporation with it significant requirements

and significant challenges. The majority of companies are limited in their compliance efforts by a

significant lack of visibility into risks, and the inefficiency and limitations of their contract processes.

With the right technologies, companies can ensure and enforce compliance with (a) automation

of contract reviews and approvals procedures and (b) by providing more timely, detailed visibility

into exposures and risks.

Contract management solutions enable improved risk assessment and compliance by (a)

providing instant and more in-depth visibility to contracts and obligations; (b) by providing

tools to analyze contracts and identify risks; and (c) by linking contracts and the contract

management solution to strategic operational and tactical systems and actions. In addition,

contract management solutions strengthen a company’s audit capabilities and reduce audit and

compliance time and costs.

As many contracts are managed by exception, material events, such as delivery dates, contract

renewals, supplier obligations, commitment levels, and pricing revisions are not readily evident.

Best-in-class contract management technologies provide configurable event triggers based on

pre-defined parameters that are configurable for each contract. Predictive notification of when

key events are supposed to happen guarantees a contract is actively managed and essential

deadlines and deliverables are not missed. With tight integration to enterprise systems, such as

SAP®, contract management can ensure that financial systems are inline with contract terms and

conditions. Best-in-class enterprise contract management solutions typically offer integrations

to operational systems and solutions such as Oracle, PeopleSoft, Seibel, JD Edwards, Salesforce.

com and SAP. Supply and contract management solution suite providers, such as Emptoris, have

pre-built integrations with spend, sourcing, supplier performance management and compliance

solutions.

Contract management solutions also speed and ease the audit process, ensuring successful

audits the first time, every time. The solutions eliminate searching through mountains of paper

and file cabinets – and make contracts, amendments and associated documents instantly

presentable. Locating and analyzing a category of contracts could take weeks in a manual audit

process. The same task can take just minutes with automated contract management. Contract

management also adds a proof of controls in effect at a company.

- 1� - - 1� - © �001 - �009 Emptoris, Inc.

3. Gaining greater control over contracts: Through proper oversight and control of contract

processes, companies can create stronger contracts that minimize risk and better enforce corporate

standards, specifically for contract approvals and contract language and terms.

With authoring and negotiation tools, best-in-class contract management solutions allow

professionals to work in Microsoft Word to create contracts from pre-approved clause and term

libraries, and enforce pre-determined templates, language, terms and approvals. Control over

primary and alternate clause usage reduces the opportunity for frontline field or other non-

contract management personnel to create rogue contracts that do not conform to company

business and legal standards. Deviations to approved templates and terms can be flagged

and contract approvals rerouted for appropriate legal or management review. With contract

management solutions, corporate and Legal Executives can establish defined, finite control over

who can create, modify and approve contractual agreements.

This control allows for creation of stronger contracts and reduction of risk associated with

undesirable terms and conditions. Legal can also accelerate its review and approval of

contracts without sacrificing quality, specifically by routing contracts for certain levels of Legal

review based on certain conditions or exceptions. One major biotech company uses such

technology to automatically receive and rout contract requests for less strategic matters to

paralegals, bypassing attorney involvement, thereby alleviating the demand on attorney time

by more than �5%.

4. Creating stronger contracts: Finally, contract management solutions allow for the creation of

stronger contracts, not only by enforcing compliance to approved policy, terms and language, but

also by leveraging the intelligence and analysis of contracts across the organization. The more a

company improves its ability to manage and optimize business terms, the more it can transform

contracting into a strategic competence. Leading contract management solutions provide

functionality, such as workflow, alerts and reporting, that help proactively review contracts; and

executive dashboards and custom reports can be created to generate operational information for

continuous improvement.

The solutions also allow for stronger contracting processes and negotiating. Having detailed

supplier, customer or partner performance information linked to contracts allows for more

advantageous negotiations when renewing a contract. With contract management solutions

analysis capabilities, Legal and Contracting Professionals can better measure cycle times and

evaluate productivity; assess contract risk levels across the organization and amend or eliminate

sub-optimal contracts.

- 1� - © �001 - �009 Emptoris, Inc.

How Contract Management Furthers Global Sourcing and Procurement Excellence

There are few processes that can more immediately and significantly impact a company’s

procurement and supply management operations than contract management. With contracts at

the heart of every strategic business-to-business relationship, they are critical to not only supply

management, but also supplier performance management. The efficiency and savings realized in

the application of purchasing automation and sourcing solutions can be enhanced with effective

contract management.

Procurement or supplier contract management plays a pivotal role in a company’s fiscal and

operational health, whether it’s enforcing negotiated pricing, realizing quantity discounts or ensuring

quality standards and associated penalties and discounts, or enforcing contract compliance. One of

the big areas of loss for companies is in supplier non-compliance to existing contracts. Standardizing

a company’s procurement contract operations becomes even more essential in a recessionary

environment.

Technology can play an important role in helping companies link contract terms to spending and

thus reduce leakage – and in linking contracts to supplier performance to track commitments versus

actual performance metrics.

Contract management impacts procurement operations through the following:

1. Realizing Sourced and Negotiated Savings: Companies have invested in sourcing solutions and

sourcing teams that work hard to source and negotiate favorable terms and pricing with suppliers,

yet too often those terms are not accurately recorded in contracts or maverick spending diminishes

the value of those savings. Contract management solutions enable companies to collaboratively

create, negotiate, and approve contracts, both internally and externally, resulting in stronger contracts

and higher realization of negotiated savings. Further, contract management software can integrate

sourcing data into a contract repository and provide powerful support for newly sourced deals.

Further, an Aberdeen study found that companies that employ contract management solutions (best-

in-class) achieve, on average, 68% of spend on-contract versus just �8% of on-contract spend for the

bottom third of Global �000 companies.

2. Enforcing Supplier Compliance: Contract management solutions can enable Procurement

Professionals to gain proper visibility relative to the terms as executed in their supplier contracts.

Using pre-built integrations to leading solutions such as Oracle, PeopleSoft, JD Edwards, and SAP,

companies ensure better supplier compliance to those terms.

3. Supplier Relationship Management: Using contract management analysis tools or through

integration with supplier and spend management solutions, company’s gain added visibility into

supplier performance. With solutions, such as those offered by Emptoris, companies can see historical

supplier performance trends, receive supplier performance alerts, and analyze spending relative

to the contract all within the contract application. Companies increasingly need to quickly amend

the procurement perspectivethe procurement perspective

- 1� - - 15 - © �001 - �009 Emptoris, Inc.

contractual relationships because of regulatory pressures, changing business conditions, and strategic

decisions which impact many of their supplier contracts. All this provides companies greater agility in

managing their exiting external relationships and agreements.

4. Analyzing and Improving Supplier Contracts: Having detailed supplier performance information

linked to contracts allows for more advantageous supplier negotiations. With a contract

management solutions analysis capabilities, procurement professionals can better measure cycle

times and evaluate productivity; assess contract risk levels across the supplier base, and eliminate

sub-optimal contracts; as well as conduct contract audits, identify key business trends in spending

and purchasing operations.

5. Driving Operational Systems: Ensuring contract data, such as terms, pricing and supplier

information is consistent cross supply chain and e-procurement systems can be a considerable

challenge. Many companies experience data management problems and are unable to validate

purchase orders against contract terms. Contract management eliminates this problem by providing

purchasing systems with contract data that is always up to date, even as contract amendments take

place over time.

6. Managing Internal Obligations: With every executed contract comes a myriad of obligations, such

as payment schedules, due dates, performance-based contingencies, and follow up requirements

for missed obligations. Contract management tracks contract obligations and uses rule-based

notifications to enable purchasing professionals to proactively meet company commitments.

- 16 - © �001 - �009 Emptoris, Inc.

The Impact of Best-in-Class Contract Management

Most contract management experts and companies seasoned in their implementation and use

of contract management technology, emphasize that people, process and technology all play an

important role in transforming contract management at a Global �000 organization. Companies that

employ best-in-class contract management processes and technology can see a significant impact

on their agility, efficiency and bottom-line:

According to a survey of Global �000 companies by the Aberdeen Group, best-in-class contract

management allows companies to capture a higher percentage of savings that have been

negotiated during a supplier negotiation or sourcing event. The study found that best-in-class

companies achieve, on average, 68% of spend on-contract versus just �7% for average companies,

and just �8% for the lower one-third of companies. The same study found best-in-class companies

had 88% percent of transactions that are compliant with contracts versus �8% for average

companies.

In terms of sales and revenue management, the study found that 75% of sales orders and revenue

recognition is compliant with a particular contract at best-in-class organizations versus just over

50% on average at Global �000 companies in general. Best-in-class companies also had a close

to 60% annual contract renewal rate versus just ��% to �8% for average to poorly performing

companies on average.

Global 2000 Usage of Contract Management Technology

Estimates vary, but market research, in general, shows a significant expansion in the use of

contract management technologies by Global �000 organizations. In a recent Aberdeen Group

study, close to 60% of companies reportedly had already advanced beyond manual processes or

homegrown, custom-built and other limited solutions – or were currently planning to adopt contract

management technologies.

A survey by Inside Counsel and Emptoris found that close to half (�9%) of all Global �000 companies

were currently planning for, or in the process of, automating the contract management process.

Twenty-three percent (��%) of companies reported that they had already automated their

contracting process or were close to completing an automation process. The survey was conducted

with a sample of 500+ legal and contracting professionals at Global �000 companies and was

compiled in September �008.

Illustrating the enterprise-wide adoption of the solutions, Gartner estimates that within the next

four years, �0% of Global 5000 companies will use a contract management enterprise application

for at least two or more departments within their global organizations. The report also uncovered

the delivery models currently in use or planned for use by Companies, with 61% of companies

employing contract management solutions having installed the solution on site at their enterprise.

the path to Enterprise Contract management Excellencethe path to Enterprise Contract management Excellence

- 16 - - 17 - © �001 - �009 Emptoris, Inc.

However, according to Emptoris, one of the leading providers of contract management technologies,

an increasing number of companies are choosing a Software-as-a-Service (SaaS) model for the

delivery of their contract management solutions.

The majority of companies, some 6�% indicated that their primary focus in implementing a contract

management solution was to provide a centralized contract repository to provider better visibility

into their contracts. As discussed below, the establishment of a central

contract repository and its use for improving visibility and compliance, and

efforts to streamline contract reviews and approvals, is typically the first

step in a contract management transformation program. The Aberdeen

study found that approvals workflows and reporting and analytics were the

next most popular reasons for adopting a contract management solution.

Relatively few companies attempt to manage contracts with their existing

Enterprise Resource Planning (ERP) systems because of the very limited

capabilities of ERP-based contract functionality. According to one report,

ERP and procurement solutions, “do not automate contract creation and

approval workflows and cannot, on their own, ensure contract compliance

at the point of transaction. Further, they ignore the role of the Legal

department in the contracting process, resulting in cumbersome workflows

and poor adoption. While these strategies are tempting, especially given

the resources companies have devoted to their enterprise solutions, they fail because none of these

systems is focused on automating the full contract lifecycle.”

In terms of best-of-breed contract management solutions, Global �000 companies have also opted

for solutions that can handle contracts across an enterprise, as opposed to “process-centric” or

industry-centric contract management solutions. Given the strategic nature of contracts, the CFO’s

and Chief Counsel’s office are often involved in the selection of such solutions, and thus tend to

prefer solutions that can be used by different departments across the organization. A Gartner

research report further states that “the enterprise contract management solution is, by virtue of

its architecture, typically suitable to support multiple contract types because the base solution

architecture requirements are the same for each type.”

The Path to Enterprise Contract Management ExcellenceThe path to contract management excellence involves a mix of people, process and technology, and

tends to be “more of a journey than a destination.” However, outlining a clear roadmap for contract

management improvement and automation will help companies ensure a smooth path of progress.

Experts and best-in-class practitioners advise companies to align the program objectives with

corporate and senior management objectives, and to develop benchmarks and evaluation criteria to

measure success.

“Enterprise-wide [contract lifecycle management] has won out, with the vast majority of enterprises opting for CLM products that allow them to more effectively create and manage all contracts on a single platform,”

– The Forrester Wave™: Contract Life-Cycle Management

- 18 - © �001 - �009 Emptoris, Inc.

Laying a Foundation for Success: Central Repository to Gain Greater Visibility, Establishing

Automated Reviews and Approvals

Most companies begin their program of contract management automation and transformation,

driven by a desire for a centralized repository for contracts to ensure better visibility into those

agreements. The sheer magnitude of expired and active contracts and amendments scattered

across an organization makes providing a central location for these agreements an urgent priority.

In its most fundamental form, the contract management solution serves as a repository with search

and retrieval capabilities for accessing contracts and amendments. Leading solutions provide

sophisticated repository functionality that enables users to search for contracts by any parameter or

criteria, while preserving visibility and access privileges for the particular contracts.

Creating Stronger Contracts: Employing Template Contracts and Clauses

The next stage of sophistication in enterprise contract management typically involves actively

managing contract templates and clauses. Some companies engage in a process of template

rationalization where existing representative agreements are consolidated into a few select

templates for easier contract creation and maintenance. During this process, clauses are reviewed

for commonality and rationalized to minimize variations of a single clause. For instance, this

rationalization process helped one company reduce 85 versions of a sales contract into less than �0

sales contract templates. Leading ECM solutions deliver capabilities for more efficiently managing

templates and clauses.

A contract management solution can help professionals easily create contracts by pulling from a

library of legally-approved templates and clauses, and modify the contract with alternative, approved

clauses as appropriate. The company can further enhance control over contracts and mitigate risks

by using the solution to mandate the inclusion of certain clauses and flagging contracts that deviate

to be routed and approved by specific managers. In addition, contract management wizards can be

sued to present a series of questions to front-line employees, such as sales representatives, using the

answers to automatically create a first draft template contract that carries relevant and pre-approved

business terms.

- 18 - - 19 - © �001 - �009 Emptoris, Inc.

Driving Contract Excellence: The more a company improves its ability

to manage and optimize business terms while ensuring compliance,

the more it can transform contracting into a strategic competence.

Leading contract management solutions provide functionality,

such as workflow, alerts and reporting, that help proactively review

evergreen contracts and renew contracts facing expiration. Executive

dashboards and custom reports provide operational information for

continuous improvement. Most importantly, these applications allow

business terms to integrate with other mission-critical systems, such

as supply management, enterprise resource planning (ERP) sales

force automation, and contract administration. Leveraging imbedded

analysis functionality or integrating with analytics applications enables

companies to predict market behavior based on past performance and

identify business terms that deliver distinct advantages.

Checklist for Enterprise Contract

Management Solutions

Searchable and access-controlled central repository for all contracts

Library of contract templates and clauses with alternates and usage guidelines

Dynamic workflow processes for contract creation and approvals

Tight Microsoft Word integration for on- and off-line contract creation and red-lining

Pre-built adaptors and GUI integration tools for linking to existing enterprise systems

Contract analytics and company performance metrics

Proactive obligation notification and renewal management

Contract compliance management that seamlessly links to enterprise systems

- �0 - © �001 - �009 Emptoris, Inc.

Nortel Networks Corporation, commonly known simply as Nortel, is a multinational

telecommunications and network equipment manufacturer, with $10.9 billion in annual

revenues and operations in more than 100 markets globally.

In early �006, the company set out on a path to improve its global sourcing operations through

the application of e-sourcing software and to streamline and transform its contracting globally

through the application of contract management software.

Challenges in the Contracting ProcessImplementing a contract management solution was more than a tech upgrade for Nortel; it

represented a transformation in the contract management process. The contracting process

“really stalled up business,” said one Nortel executive. Processes and approvals were not always

clearly defined or well-known across a department. The company got external feedback, through

a corporate audit, which strongly recommended level-set contract controls across the global

organization. “The audit was definitely an impetus for changes,” said the executive. With the added

necessity to comply with Sarbanes-Oxley, and the demands for a clear and auditable record trail

for significant transactions and relationships, the case for automating the contract process was

bolstered.

“We had some workforce issues as well,” said Eric Olson, Manager, Data Management Process &

Systems, Global Procurement at Nortel. “The shear amount of manual force we needed to deal with

the legal and contracting aspect of our supplier relationships was a significant workforce burden.”

Every single contract produced within the procurement organization needed to be reviewed

and approved.

Nortel – Driving Value with Contract Management Implementing a contract management solution wasn’t all about addressing challenges, Nortel saw

potential for significant value in the effort as well, from making staff and processes more efficient, to

ensuring cost savings and revenue are effectively captured.

One key area of value was in gaining visibility into and consolidating multiple contracts with an

individual supplier or vendor to maximize volume discounts and gain leverage in negotiating

savings. “This will certainly have an impact on our cash particularly over time,” said Olson.

Nortel executives also saw value in using contract management in connection with their sourcing

activities and solution, particularly in terms of assessing the financial stability of its suppliers.

Accessing Financial Strength of Key Suppliers Given the hundreds of key suppliers the company uses to supply components and services in the

development and manufacturing of its products, Nortel must asses the stability and viability of its

suppliers to ensure there are no disruptions in its supply chain.

nortel networks Corporation – Global Contract management implementationnortel networks Corporation – Global Contract management implementation

- �0 - - �1 - © �001 - �009 Emptoris, Inc.

Due to the critical nature of these suppliers, Nortel has a business continuity policy in place to ensure

the review the financial stability of its suppliers. This program has two major tracks, which call for (1)

regular annual supplier self-assessments of financial health, and (�) proactive financial assessments

by Nortel when a supplier meets a certain spend threshold. The first criteria requires Nortel to

have time-based notifications or alerts to request the financial assessments from suppliers, and the

second criteria required triggers to alert Nortel when a supplier was hitting a certain level of spend.

The contract management solution enabled both these alerts. Nortel has implemented a level of

integration between its contract management solution and its financial evaluation and business

continuity systems to ensure tighter compliance in this area.

Nortel Required a Global, Enterprise-wide SolutionNortel kicked off its contract management implementation in early �006, after a thorough review of

the contract management solutions available in the market. The company chose a solution, Emptoris

Contract Management, which could be used globally and enterprise-wide across the company’s

Procurement, Sales, Financial and Legal departments.

Nortel employs its contract management solution globally, both on the buy-side and the sales-side

of the company. Nortel’s global procurement operations include significant operations in Ottawa,

Boston, London, Mexico City and Delhi, India, as well as compliance offices in China, India and

countries in Southeast Asia and South America.

“Nortel definitely has a dispersed, global personnel involved in its procurement operations,”

noted Olson.

The solution is also accessed and used for strategic to functional purposes across the global

company’s internal organizations, primarily in Procurement, Sales, Compliance, and Legal, and

on occasion by Finance and even Engineering. Finance uses the solution to look at technical

accounting exposures, to mitigate those inherent risks.

“From Weeks to Fifteen Minutes”“Previously, you would have to ask each individual on a team for contracts to assess their risks,

and we often had to scramble quickly to fulfill these requests, now that is all centralized,”

said one Nortel executive.

Similar information requests and visibility tasks use to take days or weeks to fulfill before the

contract management solution implementation turned those requests into “fifteen minutes tasks.”

“The CFO or Chief Procurement Officer would regularly want to know our spend at a given period

with a certain supplier or on a certain category. That type of task would take anywhere from hours,

to days to a week, depending on the request, now its almost as simple as conducting a Google

search,” said Olson.

- �� - © �001 - �009 Emptoris, Inc.

“Good Contracts Help Minimize Risks”“Risk mitigation is what contract management is all about. If you draft good contracts, you help

ensure you minimize or avoid certain risks. When contracts take months to draft and approve,

it tends to diminish your confidence that you are full covering the issues and risks you want to

address,” said Olson.

“If a contract expires, you open the organization up to potential risks and problems. If you are not

keeping track of business continuity or financial evaluations you expose yourself. Without a system

in place it’s tough to address these issues and know if you are being successful,” continued Olson.

In a global organization, documents are often produced in various languages and currencies, a

contract management solution allows for a view of those contracts in the company’s preferred

language and currency, which improves visibility into risks and furthers compliance.

Usability: Other People’s Paper and Contract WizardsNortel executives also emphasized the usability benefits of contract management solutions. On

the sales-side, Nortel uses the Emptoris Contract management ‘Wizard” to allow Sales Professionals

and front-line Contract Managers to create sales contracts by utilizing a user-friendly online

questionnaire, similar to a Turbo-Tax application. That questionnaire drives creation of a template

sales contract that meets Management and Legal’s pre-approved standards, and meets the

parameters of the sales team as well.

Also on the sales side, Nortel utilizes contract management functionality to capture “Other People’s

Paper” or contracts written by customers. The function allows for the scanning of outside contracts

and the conversion of the text into an active, intelligent contract document in the contract

management system. This allows Nortel Sales to work within the customer’s terms, while still gaining

the visibility and legal and compliance controls, available in the contract management system. This

also allows for quicker internal review and edits to external agreements.

Lessons LearnedNortel cautions that companies should conduct due diligence in terms of identifying the legacy

contracts to be loaded into the contract management solution in advance of implementation, if

possible, noting this was an area that required the most investment of time in getting the contract

management solution up and running. Nortel executives noted that it was easier and took less

time to create templates and load legacy contracts on the sales side of the business, than on the

procurement side of the business.

“If we had to give advice to another company implementing contract management, we would advise

to focus on having a strong implementation plan, focus on training and adoption, and give yourself

and the organization time to transition,” said Olson.

- �� - - �� - © �001 - �009 Emptoris, Inc.

In terms of driving adoption, Nortel developed an internal “contract council” which included

representation from upper management, to ensure smooth implementation and adoption of the

contract management transformation and solution. “Putting together a cross-functional team was

critically important, and you want to have a few people with some horse-power as a sounding board.

Building a consensus and keeping people on that consensus, and on plan is a key component of a

successful implementation,” advised Olson.

“I recommend having real tangible benchmarks and goals for the program. For us, conducting

and passing an internal audit of our contracting processes was a key goal, and one we recently

completed,” continued Olson.

“We are far from done in our full usage of contract management software; however, it’s really more of

a journey than a destination. There is more value, more adoption to be realized,” concluded Olson.

Emptoris Contract Mangement System

Who Benefits?

srms pst Lead Gp/Compliance

Central repository for contracts worldwide-Easy Searching X X X

Framework for single Global Contracting Process X X X

Store important documents directly with the contract X X

Tracking of contract status for individual or PST X X

Notification of contract expiry X X

Manage Contract Lifecycle including reassigning ownership X X

Electronic routing and approval X X

Contract templates - latest revisions always available in the tool

X X

Close SOX audit exposure X

Track and mitigate potential Technical Accounting Issues X

- �� - © �001 - �009 Emptoris, Inc.

Contracts represent the foundation of all business relationships between customers and trading

partners. Advanced contract management processes allow businesses to streamline their contract

processes and ensure that the value negotiated in a contract is the value received. Across the global

enterprise, contract management impacts not only Legal, but also impacts Finance, Sales, and

Procurement. The most successful businesses collaborate across departmental lines to create contract

processes and procedures that ensure the best business for the global organization. Automation

standardizes these processes to be repeatable and scalable as the business grows.

ConclusionConclusion

Emptoris is a world leader in innovative supply and contract management software solutions that

empower enterprises to realize best value and accelerate profitable growth. Emptoris solutions are

used by successful Global �000 companies in every industry. Emptoris sourcing spend analysis and

contract management solutions are consistently recognized by leading independent analyst firms as

the market’s leading solutions. Most recently, Emptoris was positioned as in the “leaders quadrant” in

the Gartner research report, “Magic Quadrant for Sourcing Application Suites, �008” - and received the

highest score for “Current Product Offering” in “The Forrester Wave: Contract Life-Cycle Management,

�008.” Emptoris customers include American Express, Boeing, ConocoPhillips, GlaxoSmithKline, Kraft,

Motorola, Owens Corning, Syngenta, and Vodafone.

About Emptoris

- �� - - �5 - © �001 - �009 Emptoris, Inc.

“The Forrester Wave: Contract Life-Cycle Management”

This 17-page research report from Forrester Research, an acclaimed independent research firm,

reviews 1� contract management software providers and evaluates them on 110 criteria, including

current product offering, strategy and market presence.

“Gartner MarketScope for Contract Management Software”

This research report from Gartner, based on interviews with companies that have implemented

contract management solutions, reviews nine contract solutions and rates the solutions fourteen

criteria including: customer experience, business model, market understanding, innovation, and

product functionality.

“Contract Lifecycle Management and the CFO: Optimizing Revenues, Capturing Savings”

Benchmark study of contract management implementations by The Aberdeen Group.

“Bringing Contract Management into the 21st Century: 5 Principles Every Procurement

Executive Should Know.”

Online seminar featuring the Global Purchasing Manager at Syngenta AG, a Financial Times Global

500 company; and Andrew Bartels, Vice President & Research Analyst at Forrester Research. In

the seminar, the experts share their experiences and insights into best practices in contract

management.

“Taking SAP to the Next Level: Using Contract Management to Gain Greater Value from SAP”

Whitepaper from Emptoris examining how to maximize an investment in SAP through the addition

of advanced contract management capabilities.

“Contract Management Automation - Delivering Compliance and Bottom Line Results”

In this podcast, Tim Cummins, the Executive Director of the International Association of Contract

and Commercial Management (IACCM) discusses the importance of contract management

to global companies – and how improved contracting processes and technologies can help

companies improve compliance and bottom line results.

Further resources and recommended reportsFurther resources and recommended reports

- �6 - © �001 - �009 Emptoris, Inc.

notesnotes

- �6 - - �7 - © �001 - �009 Emptoris, Inc.

notesnotes

For more information about Emptoris, visit: www.emptoris.com,

call 1.781.993.9212, or

email [email protected].

Emptoris, inc.200 Wheeler Road, Burlington, MA 01803

tel 781-993-9212 • fax 781-993-9213 • www.emptoris.com

© 2001 - 2009 Emptoris, Inc.